k. brian rollerVs.alexander r. boler|Agency for Health Care ... -- eLawyers

Petitioner: ABRAHAM RODRIGUEZ
Respondent: AGENCY FOR HEALTH CARE ADMINISTRATION
Judges: ROBERT E. MEALE
Agency: Agency for Health Care Administration
Locations: Altamonte Springs, Florida
Filed: Dec. 12, 2018
Status: Closed
DOAH Final Order on Friday, June 5, 2020.
Latest Update: Oct. 29, 2019

Summary: The issues are whether, pursuant to section 409.910(17)(b), Florida Statutes (sometimes referred to as "17b"), Respondent's recovery of medical assistance expenditures from $500,000 in proceeds from the settlement of a products liability action must be reduced from its allocation under section 409.910(11)(f) (sometimes referred to as "11f")1 to avoid conflict with 42 U.S.C. § 1396p(a)(1) (Anti-Lien Statute)2; and, if so, the amount of Respondent's recovery.Recipient proves right to proportional

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STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ABRAHAM RODRIGUEZ,

vs.

Petitioner,

Case No. 18-6524MTR

AGENCY FOR HEALTH CARE ADMINISTRATION,

Respondent.

FINAL ORDER

On February 15, 2019, Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings (DOAH), conducted the final hearing by videoconference in Altamonte Springs and Tallahassee, Florida.

APPEARANCES

For Petitioner: K. Brian Roller, Esquire

The Roller Law Firm 3876 Sheridan Street

Hollywood, Florida 33021

For Respondent: Alexander R. Boler, Esquire

Florida Medicaid TPL Recovery Unit 2073 Summit Lake Drive, Suite 300

Tallahassee, Florida 32317 STATEMENT OF THE ISSUES

The issues are whether, pursuant to section 409.910(17)(b), Florida Statutes (sometimes referred to as "17b"), Respondent's recovery of medical assistance expenditures from $500,000 in

proceeds from the settlement of a products liability action must be reduced from its allocation under section 409.910(11)(f) (sometimes referred to as "11f")1 to avoid conflict with 42 U.S.C.

§ 1396p(a)(1) (Anti-Lien Statute)2; and, if so, the amount of Respondent's recovery.

PRELIMINARY STATEMENT

On December 12, 2018, Petitioner filed with DOAH a Petition to Determine Amount Payable to Agency for Health Care Administration in Satisfaction of Medicaid Lien. The petition invokes Petitioner's right to a 17b proceeding and alleges that Respondent's 11f recovery is excessive under federal law.

At the hearing, Petitioner called one witness and offered into evidence eight exhibits: Petitioner Exhibits A through H. Respondent called no witnesses and offered into evidence one exhibit: Respondent Exhibit A. All exhibits were admitted. At the request of the administrative law judge, for the purpose of taking official notice, Respondent filed, post-hearing, copies of three judgments issued pursuant to the opinions set forth in Gallardo v. Dudek, 263 F. Supp. 3d 1247 (N.D. Fla. 2017)

(Gallardo I), as clarified in Gallardo v. Senior, 2017 U.S. Dist. LEXIS 112448 (N.D. Fla. 2017) (Gallardo II), appeal filed,

No. 17-13693 (11th Cir. Aug. 17, 2017). Also, at the request of the administrative law judge, for the purpose of taking official notice, Petitioner supplemented the record with evidence of the

attorneys' fees and costs that have been or will be deducted from his settlement proceeds.

The parties did not order a transcript. The parties filed proposed final orders on March 7, 2019.

FINDINGS OF FACT

As a result of a motor vehicle accident that took place on May 27, 2012, Petitioner sustained grave personal injuries, including damage to his spinal cord that has left him a paraplegic incapable of self-ambulation of more than a few steps, except by means of a wheelchair or rolling walker. Petitioner was a passenger in a 2003 extended-cab Ford F-150 pickup truck that was driven at a high rate of speed by his brother, who lost control of the vehicle in a curve, over-corrected, and caused the vehicle to rollover three times, ejecting Petitioner with such force that he traveled a distance of 150 feet in the air.
The force of the rollovers crushed the vehicle's roof, which caused Petitioner's door latch to fail, allowing Petitioner's door to open and Petitioner to be expelled from the relative safety of the passenger compartment. In settlement negotiations, Petitioner's trial counsel claimed that Ford F-150s of the relevant vintage suffered from deficient door latches, but the forces to which the latch were subjected were overwhelming and well beyond reasonable design limits: the truck's door could

not have resisted these forces unless it had been welded to the frame.
The one-vehicle accident was substantially, if not entirely, caused by Petitioner's brother, who was intoxicated and is now serving a five-year sentence in prison for his role in the crash. Petitioner shared some responsibility because he likely was not wearing a seatbelt when the truck rolled over. Petitioner's brother and another passenger who were not ejected from the vehicle sustained minor injuries.
Petitioner commenced a products liability action against Ford Motor Company and the manufacturer of the door latch. Ford Motor Company defended the case vigorously. Expert witnesses were unable to find any federal safety standards that had been violated in connection with the vehicle, the door latch, or the performance of the vehicle and door latch during the rollovers. The manufacturer of the door latch raised a substantial defense of a lack of personal jurisdiction.
At the time of the incident, Petitioner was a

25-year-old plumber and construction worker. He was the sole means of support for his three young children. He has undergone an arduous course of rehabilitation to gain wheelchair-dependent self-autonomy.
At the time of the settlement, which appears to have resolved the products liability action, the putative true value

of Petitioner's case was $6 million, consisting of $154,219 of past medical expenses, $2.1 million of future medical expenses,
$800,000 of lost wages and loss of future earning capacity, and about $2.95 million of noneconomic damages, including pain and suffering and loss of consortium. Petitioner has proved each of these damages components, so the putative true value is the true value (sometimes referred to as the "actual true value").
Petitioner settled the case for $500,000, representing a settlement discount of 91.7% from the true value of $6 million (Settlement Discount). Petitioner has paid or incurred $147,000 in attorneys' fees and about $123,000 in recoverable costs in prosecuting the products liability action.
Respondent has expended $154,219 of medical assistance.

Under the 11f formula, which is described in the Conclusions of Law, Respondent would recover approximately $126,000 from the
$500,000 settlement. This provisional 11f allocation provides the point of reference for determining whether Petitioner has proved in this 17b proceeding a reduced recovery amount for Respondent.
Having proved the Settlement Discount of 91.7% from the actual, not putative, true value to the settled value, Petitioner has proved that each damages component of the true value, including past medical expenses, must be proportionately reduced by 91.7% to identify the portion of the settlement proceeds

representing past medical expenses, which, as discussed in the Conclusions of Law, is the only portion of the proceeds subject to the Medicaid lien. Reducing the past medical expenses of
$154,219 by 91.7% yields about $12,800, which is Respondent's tentative 17b recovery.
As mentioned in the Conclusions of Law, Respondent's recovery must bear its pro rata share of the attorneys' fees and costs paid or incurred to produce the settlement. The total fees and costs of $270,000 represent 54% of the settlement. The record provides no reason to find that these fees and costs are unreasonable in amount or were not reasonably expended to produce the $500,000 settlement. Reducing Respondent's recovery of
$12,800 by 54% yields $5888, which is Respondent's 17b recovery.

CONCLUSIONS OF LAW
1. Jurisdiction
DOAH has jurisdiction. §§ 120.569, 120.57(1), and 409.910(17)(b), Fla. Stat. (2018); Giraldo v. Ag. for Health Care
Admin., 248 So. 3d 53 (Fla. 2018); Ag. for Health Care Admin. v. Smathers, 2019 Fla. App. LEXIS 703 (Fla. 1st DCA 2019) (per
curiam); Gallardo II.
1. Three Basic Principles of Medicaid Third-Party Liability Cases and Overview of 17b Proceedings
Three basic principles govern Medicaid third-party liability cases. First, even if the state Medicaid agency is

certain to expend tens of millions of dollars of additional medical assistance in the future, the agency may never lien or recover an amount in excess of its already-expended medical assistance (the Reimbursement Principle). The point of a
third-party liability case is to determine the agency's share of the recipient's proceeds to reimburse the agency for already- expended medical assistance.
Second, the state Medicaid agency has only one opportunity during the recipient's life3 to recover its
already-expended medical assistance expenditures, assuming that the recipient4 will obtain only one judgment or settlement. The agency has one chance to establish its share of proceeds, subject to the Reimbursement Principle, regardless of whether it will never expend another dollar of medical assistance or will expend another $50 million of medical assistance.
Third, the stakes are high in Medicaid third-party liability cases, obviously, for the recipient, but also for the state Medicaid agency. For 2016, when, in the aggregate, state budgets from state and federal sources totaled $1.9 trillion, Medicaid spending represented about 29% of these expenditures-- 18% from federal funds and 11% from state funds.5 Medicaid spending also has grown quickly: for 1992, Medicaid spending represented only about 19% of state budgets from state and federal sources.6 And Medicaid spending promises to continue to

grow: Medicaid expenditures at the federal and state levels, which consumed 3.1% of U.S. gross domestic product (GDP) in 2016, are projected to consume 3.7% of U.S. GDP in 2026.7
Medicaid third-party liability cases follow a common fact pattern. A recipient suffers an injury or illness, and Respondent expends medical assistance--i.e., makes Medicaid payments--to health care providers on behalf of the recipient. After commencing a legal action, the recipient obtains a judgment against, or settlement proceeds from, a defendant who is liable for the injury or illness. The state Medicaid agency liens the judgment or settlement proceeds to secure its recovery of some or all of the medical assistance expenditures, which, in many cases, roughly equal the portion of the proceeds representing past medical expenses.8
In theory, after a settlement for true value or a judgment, a recipient could commence a 17b proceeding to allocate undifferentiated judgment or settlement proceeds among various damages components to identify the portion of the proceeds representing past medical expenses. But 17b proceedings do not ordinarily involve this kind of dispute.
In practice, a recipient commences a 17b proceeding to identify the portion of settlement proceeds representing past medical expenses after the recipient has settled her case at a substantial Settlement Discount from the putative true value of

the case. The recipient invariably proposes to reduce the portion of the putative true value representing past medical expenses by the Settlement Discount to identify Respondent's maximum recovery amount from the settlement proceeds. The primary purposes of the 17b proceeding are to determine whether the putative true value is the true value; if not, to reduce the putative true value to the actual true value, if possible; if the actual true value can be determined, to calculate the Settlement Discount, which must be based on the settled value and actual true value, not putative true value; to determine Respondent's 17b recovery by applying the Settlement Discount to the portion of the actual true value representing past medical expenses, subject to the Reimbursement Principle; and, if the true value and Settlement Discount cannot be determined, to dismiss the 17b petition.
The comparison of the putative true value to the actual true value--and, where necessary, reduction of the putative true value to the actual true value--implies the determination of the extent to which the recipient was induced to accept the Settlement Discount due to problems with proving the damages components in the putative true value. Actual true value means that a preponderance of the evidence supports all damages components. Damages components not supported by a preponderance of the evidence must be reduced until supported by a

preponderance of the evidence or, if this is not possible, eliminated in the process of reducing the putative true value to the actual true value. When the actual true value has been determined, any remaining Settlement Discount--from actual true value, not putative true value--is attributable entirely to nondamages problems, normally, problems with proving liability, and supports a proportional reduction of the damages components, including past medical expenses, from their actual true value to the settled value.
1. Ahlborn and Wos
As Medicaid expenditures ramped up, the modern era of third-party liability began with Arkansas Department of Health &
Human Services v. Ahlborn, 547 U.S. 268 (2006). Setting aside a state statute allowing the state Medicaid agency to recover its medical assistance expenditures from the entirety of settlement proceeds, Ahlborn holds that a state Medicaid lien may only be
satisfied from the portion of settlement proceeds representing "payments for medical care."9 Although the opinion is limited to an exercise in statutory interpretation of conflicting provisions of Medicaid law, the implicit holding is that the Anti-Lien Statute preempts the state statute, pursuant to the Supremacy Clause of the U.S. Constitution.10
Ahlborn is otherwise of limited value as precedent.

The recipient did not challenge the attachment of the Medicaid

lien to the portion of the settlement proceeds representing medical expenses, so the Court effectively was left with the choice of allowing the lien to extend to the entire proceeds or limiting the lien to the portion of the proceeds representing medical expenses. If the Court limited the reach of the Medicaid lien, the parties' stipulation bound the Court to apply the Settlement Discount to the portion of the true value representing medical expenses--i.e., a proportional reduction. The only additional guidance in Ahlborn is the Court's observation that "the risk that parties to a tort suit will allocate away the State's interest can be avoided either by obtaining the State's advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision."11
In a more important decision for present purposes, seven years later, in Wos v. E.M.A., 568 U.S. 627 (2013), the Court, in a 6-to-3 decision, invalidated a North Carolina statute that allocated to the state Medicaid agency, in all cases,
one-third of judgment or settlement proceeds, subject to the Reimbursement Principle. Drawing the facts from the majority opinion and the Fourth Circuit decision,12 which was affirmed, the true value of the plaintiff's case was $42 million, including $37 million of future medical expenses. The state Medicaid agency had expended $1.9 million of medical assistance. Although the opinions do not indicate the true value of the past medical

expenses, if they approximated the total medical assistance already expended--about $2 million--the remaining $3 million represented damages components other than past and future medical expenses.
The Wos recipient settled her case for $2.8 million,

and the parties were unable to agree on the extent, if any, to which medical expenses should be scaled down. Under North Carolina's fractional formula, the state Medicaid agency was entitled to $933,333, roughly half of what it had expended in medical assistance. Contending that the agency's recovery could not extend to proceeds representing future medical expenses, the recipient objected to a recovery of about one-half of the past medical expenses when the Settlement Discount was about 93.3%.
The Wos majority reasoned that the North Carolina

fractional formula was preempted by the Anti-Lien Statute:

. . . The defect in [the North Carolina fractional formula] is that it sets forth no process for determining what portion of a [recipient's] tort recovery is attributable to medical expenses. Instead, North Carolina has picked an arbitrary number-- one-third--and by statutory command labeled that portion of a [recipient's] tort recovery as representing payment for medical care. . . .

* * *

. . . The problem is not that [the North Carolina statutory formula] is an unreasonable approximation in all cases. In some cases, it may well be a fair estimate.

But the State provides no evidence to substantiate its claim that the one-third allocation is reasonable in the mine run of cases.[13] Nor does the law provide a mechanism for determining whether it is a reasonable approximation in any particular case.[14]
It is unclear whether the Wos majority signaled that it

would be satisfied if a fractional formula were a "fair estimate" in the "mine run of cases" or if a fractional formula produced a "reasonable approximation in any particular case." But no state Medicaid agency has attempted to justify a fractional formula on either ground since Wos. Thus, Wos effectively holds that a
recipient subject to a fractional formula has a right to limit the state Medicaid recovery to the portion of the settlement proceeds representing medical expenses15 by commencing a "judicial or administrative proceeding" to produce allocations that, if not "precise," at least are not "arbitrary."16
Rejecting North Carolina's argument that "frequent [allocation] mini-trials" would be unduly burdensome, the Wos
majority responded that states "have considerable latitude to design judicial and administrative procedures to ensure a prompt and fair allocation of damages." The Wos majority cited, among other statutory schemes, an Oklahoma statute that specifies full reimbursement of the Medicaid lien "unless a more limited allocation of damages to medical expenses is shown by clear and convincing evidence."17 However, the Wos majority warned that it

was not holding that any of these state procedures were compliant with the Anti-Lien Statute.18
In a dissent joined by two justices, Chief Justice Roberts questioned the authoritative source of the "basic policy judgment" of the majority that "segregating medical expenses from a . . . recovery must be done on a case-specific, after-the-fact basis, rather than pursuant to a general rule spelled out in advance."19 Chief Justice Roberts scaled the potential distortion of a fractional formula by noting the role of the Reimbursement Principle.20 Chief Justice Roberts assumed that the judicial or administrative proceeding required by the majority would have to determine what claims would have succeeded if a trial had taken place, what damages would have been proved for each claim, and other issues of the type that a settlement is "intended to obviate."21 Noting the majority's objection to the size of North Carolina's fraction, Chief Justice Roberts recognized that North Carolina had not chosen a larger fraction.22 Addressing the elements of existing state alternative procedures to a fractional formula, Chief Justice Roberts complained that the majority opinion "ominously declines to give any assurance 'that these [elements] are necessarily compliant with the federal statute.'"23
In assessing a state's effort at navigating the space between the Federal Third-Party Liability Statutes and the
Anti-Lien Statute, Chief Justice Roberts concluded by reminding

courts of several principles governing the adjudication of the constitutionality of state Medicaid third-party liability laws: states traditionally define the contours of their tort law, the omission from federal Medicaid laws of specific allocation provisions suggests that Congress did not intend to strip from states their traditional power over the allocation of judgment or settlement proceeds, preemption case law starts with the presumption that historic police powers of states are not superseded by federal law without a clear Congressional intent to do so, and, as Spending Clause legislation, the Anti-Lien Statute binds the states only insofar as it is "unambiguous."24
1. Florida Law: The 11f Formula and 17b Proceeding
Section 409.910 is Florida's Medicaid Third-Party Liability Act (the Act).25 § 409.910(2). The Act expresses the legislature's intent for Medicaid to be the payor of last resort for medically necessary goods and services furnished to Medicaid recipients. § 409.910(1). Incorporating the Reimbursement Principle, the Act requires Respondent to obtain reimbursement from third-party benefits up to the amount of medical assistance expended. § 409.910(4). To obtain the "greatest recovery from third-party benefits" relating to a covered injury or illness,
Respondent is subrogated to the recipient's rights to any third-party benefit, receives an assignment of a recipient's
rights to any third-party benefit, and has an "automatic lien for

the full amount of medical assistance provided by Medicaid to or on behalf of the recipient." § 409.910(6)(a), (b), and (c).
Subrogation, assignment, and lien rights form the backbone of the Act, as section 409.910(11) authorizes Respondent, as a subrogee, assignee, or lienholder, to commence or join in any legal action or administrative proceeding in its capacity as a subrogee, assignee, or lienholder.
Section 409.910(11)(c) imposes upon the circuit court a duty to segregate from judgment or settlement proceeds an amount sufficient to repay Respondent's medical assistance expenditures and to order such amounts to be paid to Respondent. Conditioned upon the commencement of a tort action against a third party, section 409.910(11)(f) provides that, "[n]otwithstanding any provision in this section to the contrary,"26 any recovery "shall be distributed" in accordance with the 11f formula. The 11f formula reduces the judgment or settlement proceeds by recoverable costs and 25% for attorneys' fees, regardless of actual attorneys' fees, and then splits the difference between the recipient and Respondent, subject to the Reimbursement Principle. Ignoring costs, the 11f formula effectively allocates 37.5% of the proceeds to Respondent.
Recognizing the similarities between North Carolina's fractional formula and the 11f formula, the Florida legislature enacted section 409.910(17)(b)27 a few months after Wos was

decided. Four years later, shortly after the issuance of Gallardo I, which is discussed in detail below, the Florida legislature enacted the 2017 revisions to section 409.910(17)(b).28 With additions underlined and deletions stricken through, reflective of the 2017 amendments, the relevant provisions of section 409.910(17)(b) state:
If federal law limits [Respondent] to reimbursement from the recovered medical expense damages, a recipient . . . may contest the amount designated as recovered medical expense damages payable to the agency pursuant to the [11f] formula . . . by filing a petition under chapter 120 . . . with [DOAH] . . . . Final order authority for the proceedings specified in this subsection rests with [DOAH]. This procedure is the exclusive method for challenging the amount of third-party benefits payable to the agency. In order to successfully challenge the amount designated as recovered medical expenses ~~payable to~~ ~~[Respondent]~~, the recipient must prove, by clear and convincing evidence, that the a ~~lesser~~ portion of the total recovery which should be allocated as ~~reimbursement for~~ past and future medical expenses is less than the amount calculated by the agency pursuant to the [11f] formula . . ..
Alternatively, the recipient must prove by clear and convincing evidence or that Medicaid provided a lesser amount of medical assistance than that asserted by [Respondent].
In sum, the 11f formula applies to the gross proceeds of a judgment or settlement. If a recipient is dissatisfied with Respondent's 11f allocation, the recipient may commence a 17b proceeding. In the 17b proceeding, the recipient tries to prove

that Respondent's provisional 11f allocation exceeds its portion of the proceeds, as calculated based on section 409.910(17)(b) and Giraldo and Gallardo I and II, which are discussed
immediately below.
1. The 11f Formula and 17b Proceeding after Preemption Rulings in Giraldo and Gallardo I and II
In 2018, in Giraldo, which involved a 17b proceeding,

the Florida Supreme Court held that the Anti-Lien Statute limits Respondent's Medicaid lien and recovery to the portion of settlement proceeds representing past medical expenses.29
Announcing the same ruling, one year earlier, Gallardo I invalidated30 in section 409.910(17)(b) the reference to future medical expenses in the form of "and future," as well as the reference to the evidentiary standard of clear and convincing evidence in the form of "by clear and convincing evidence."31 From the opinion, it seems that the Gallardo court
intended a finding of preemption, on its face and as applied,32 as to the reference to future medical expenses, so as to preclude any application of section 409.910(17)(b) that would capture any portion of judgment or settlement proceeds representing future medical expenses.33
Gallardo I does not invalidate the entire 17b proceeding,34 despite the court's unflattering analysis of various provisions of section 409.910(11)(f) and (17)(b). The court

unambiguously issued its two preemption rulings in the conclusion of the opinion, which consists of three orders and three directions to the clerk for preparing the summary judgment in favor of the recipient. The first two orders are on the opposing motions for summary judgment and are of no present relevance.
The third order is that section "409.910" is preempted. Fortunately, the breadth of his order is narrowed by the directions. The first direction is that the recipient proved that "portions of section 409.910(17)(b)" are preempted. The imprecision of the first direction is eliminated by the second and third directions, which operate as specifications of the first direction. The second direction, which does not mention section 409.910(17)(b), is that Respondent is prohibited from seeking recoveries from proceeds representing future medical expenses. The third direction, which refers to section 409.910(17)(b), prohibits Respondent from requiring a recipient to disprove section "409.910(17)(b)'s formula-based allocation"35 by clear and convincing evidence. The opinion's criticism of other provisions of section 409.910(11)(f) and (17)(b), such as the 25% reduction for attorneys' fees and imposition of the burden of proof on the recipient, is part of the court's strategy of enumerating a "host of obstacles" imposed on the recipient,36 so as to underscore the urgency, at minimum, of ridding the
17b proceeding of the clear and convincing evidentiary standard.
Gallardo II constitutes the court's rulings on

Respondent's motion to alter or amend the amended summary judgment that the clerk issued after Gallardo I.37 However, the
court made one change to its directions to the clerk by adding that the recipient also proved that portions of section 409.910(11)(f) are preempted. Now, the text of the second direction, which addresses future medical expenses, could serve to specify preemption rulings directed to the 11f formula and 17b proceeding because, as noted above, the second direction lacks a statutory reference. The need to identify a provisional 11f allocation as a point of reference for the 17b proceeding necessitates a determination of the effect, if any, of Gallardo II on the 11f formula.
Textually, the insertion of a reference to section 409.910(11)(f) in the first direction is unambiguous--portions of this statutory provision, like portions of section 409.910(17)(b), are preempted. The plain meaning of this change to the text of the first direction, as specified by the second direction and supported by language in the body of the opinion,38 is that the 11f formula is preempted insofar as its application to undifferentiated proceeds reaches the portion of the proceeds representing future medical expenses. However, the court did not intend this meaning for three reasons.
First, the plain meaning of the first and second directions in Gallardo II renders the 11f formula useless, so the ostensible invalidation of portions of section 409.910(11)(f) would be the invalidation of the entire statute. Although the references to future medical expenses and clear and convincing evidence can be excised from section 409.910(17)(b) without damage to the 17b proceeding, the excision of future medical expenses from the undifferentiated proceeds subject to the 11f formula would reduce section 409.910(11)(f) to rubble. Since Ahlborn, no Medicaid lien may attach to portions of judgment or
settlement proceeds that are not medical expenses, so the same logic that would remove future medical expenses from the undifferentiated proceeds would also remove noneconomic damages and other economic damages like lost wages and loss of future earning income. This thorough cleansing of the 11f formula would leave Respondent with a 37.5% share of what is left--past medical expenses--even though its Medicaid lien indisputably attaches to the entirety of past medical expenses. This absurd result suggests that the partial preemption of section 409.910(11)(f) means something other than what it says.
Second, a judicial excision of future medical expenses from the undifferentiated proceeds subject to a fractional formula, like the 11f formula, if augmented by a 17b-like proceeding, would not be commanded by Wos or represent even an

extension of Wos. Such a ruling would be an unprecedented

repudiation of Wos, whose teaching, albeit in dictum, is that a state's fractional formula is constitutionally permissible, as long as the state Medicaid agency's allocation under the formula is rebuttable in a 17b-like proceeding. Nothing in Gallardo I or
II suggests that the court intended anything other than a routine application of Wos, so this analysis suggests that the partial
preemption of section 409.910(11)(f) means something other than what it says.
Third, a judicial declaration in Gallardo II

invalidating all or part of section 409.910(11)(f) would raise a notice problem. Respondent, not the recipient, sought the relief addressed in Gallardo II. Gallardo I clearly did not preempt anything within section 409.910(11)(f). Thus, a construction of Gallardo II to such effect would imply an unlikely deprivation of procedural due process by the court itself. This implausible scenario suggests that the partial preemption of section 409.910(11)(f) means something other than what it says.
Gallardo II presented the court with an opportunity to

clarify its rulings in Gallardo I. As revealed by, among other things, the "host-of-obstacles" comment in Gallardo I, the court viewed the scrubbing of the clear and convincing standard39 from the 17b proceeding as the minimal excision necessary to avoid conflict with the Anti-Lien Statute by way of implied statutory

irrebuttability of the 11f formula. Perhaps sensing a need to buttress this preemption ruling,40 the court in Gallardo II added section 409.910(11)(f) to its partial preemption ruling, reasoning: 1) if irrebuttable, the 11f formula would be preempted, as Wos holds; 2) the 11f formula is irrebuttable as
long as the 17b proceeding is governed by the clear and convincing standard; so 3) the 11f formula is preempted until the 17b proceeding is relieved of this high evidentiary standard.
The change to the first direction to the clerk reinforces the point that the 11f formula remains intact only if the 17b proceeding is governed by the preponderance standard.41 Choosing not to disturb its prior phrasing of the first direction, the court inserted the reference to section 409.910(11)(f) beside its reference to section 409.910(17)(b) in an attempt to express the court's intent to impose upon section 409.910(11)(f) a ruling of conditional preemption, not partial preemption.
For these reasons, Gallardo II does not affect the

provisional determination of an approximate 11f recovery based on section 409.910(11)(f), as presently enacted.42 Applying the 11f formula in the present case, the circuit court in the products liability action likely would reduce Petitioner's $500,000 settlement by $125,000 for attorneys' fees ($500,000 x 25%) and about $123,000 in costs, leaving a net of about $252,000 to be split equally between the recipient and Respondent. Thus,

Respondent's provisional allocation under the 11f formula is about $126,000, which is the reference point in determining if this 17b proceeding produces a lower recovery for Respondent.
1. Giraldo and the Role of Expert Testimony in a 17b Proceeding
  1. The Giraldo Evidentiary Holding
Besides their treatment of future medical expenses, Gallardo I and II and Giraldo are studies in contrast in their
focus on the 17b proceeding. Addressing the prospect of an overstatement of the portion of the settlement proceeds representing past medical expenses, Gallardo I and II state a
single procedural preemption ruling embedded in a rumination on the impact to the recipient of restrictive procedures and, by implication, restrictive evidentiary rulings. Illustrating the prospect of an understatement of the portion of the settlement proceeds representing past medical expenses, Giraldo states a seemingly innocuous evidentiary ruling while demonstrating the impact to Respondent of lax evidentiary rulings.
After an administrative hearing in a 17b proceeding, the Giraldo administrative law judge evaluated the recipient's evidence and found serious deficiencies,43 rejected the recipient's claim for a proportional reduction of the damages components making up the putative true value of the case, determined that the Medicaid lien extends to settlement proceeds representing past and future medical expenses, and ruled that the

recipient had failed to rebut the provisional 11f allocation.44 The final order was affirmed by the district court of appeal.45
In addition to a unanimous holding on the issue of future medical expenses, a majority of the Giraldo court directed the district court of appeal to order the administrative law judge to reduce the lien to $13,882, based on "uncontradicted evidence" presented by the recipient that this is the amount of Respondent's 17b allocation. The uncontradicted evidence was the testimony of the recipient's expert witnesses applying a proportional reduction based on a putative Settlement Discount derived from the putative true value and settled value.
The majority acknowledged that a factfinder may reject uncontradicted testimony, but only if there is a reasonable basis in the evidence for doing so.46 Dissenting, Justice Polston stated that the case should be remanded to the administrative law judge to determine the proper allocation based on past medical expenses only.47
The Giraldo evidentiary ruling is exceptional in two respects. First, Respondent failed to object to the expert testimony applying a proportional reduction. Second, humanitarian grounds may have been a factor: the recipient died shortly before the administrative hearing, and eight years had elapsed between the accident and the supreme court's decision.48
Even so, the Giraldo evidentiary ruling is important

because the Giraldo administrative hearing followed a common pattern. First, the recipient calls her trial lawyer to prove a proportional reduction by using the settled value and putative true value to determine a putative Settlement Discount and applying the putative Settlement Discount to each damages component of the putative true value, including, of course, past medical expenses. Second, without calling a witness and sometimes with no more than desultory cross-examination of the recipient's witness, Respondent argues that the recipient's evidence fails to justify a proportional reduction, leaving Respondent, it hopes, with the 11f allocation. The Giraldo
evidentiary holding highlights two related problems with this common pattern: 1) the impropriety of allowing an expert witness to select a reduction method and 2) the complete lack of supporting evidence for a proportional reduction.
Several cases discuss aspects of two methods of reducing damages components from a case's true value--or putative true value--to its settled value: proportional reductions and differential reductions.49
As illustrated in the Findings of Fact, a proportional reduction reduces each damages component of the true value by the

Settlement Discount, which, in the present case, as noted above, is 91.3%. So, a proportional reduction in this case would reduce each true value damages component, including past medical expenses, by 91.3%.
A recipient routinely commences its proportional reduction argument with the putative true value, which, if inflated, invariably includes inflated damages components other than past medical expenses. The recipient then calculates a putative Settlement Discount and argues for the past medical expenses to be reduced by the putative Settlement Discount to determine Respondent's recovery, subject to the Reimbursement Principle. The problem is that the inflated damages components generate an inflated Settlement Discount that, when applied to the uninflated past medical expenses, produces an artificially low recovery for Respondent.
A proportional reduction properly accommodates a Settlement Discount that is driven by problems in establishing liability, significant comparative liability of the recipient, the comparative liability of one defendant among several defendants in the absence of joint and several liability,50 a defendant's inability to satisfy a judgment, the recipient's urgent need for funds, or some other reason not involving problems in proving damages. When nondamages factors, alone, drive a settlement, the true value of each damages component

satisfies the minimal standard of probability, which, since Gallardo I and II, means that the recipient has proved the damages component by a preponderance of the evidence.51 This means that the damages components total the true value of the case, so a proportional reduction of all damages components fairly applies the Settlement Discount to each damages component.
If the recipient presents an inflated putative true value, the first task, if possible, is to reduce the inflated damages components to levels that are supported by a preponderance of the evidence. This requires a differential reduction of each inflated damages component.
A differential reduction accommodates a Settlement Discount that is driven by problems in damages. The putative value exceeds the true value when some or all of the damages components are overstated or one or more damages components or items within a component were not caused by the settling defendant's acts and omissions. A differential reduction normally favors Respondent because it will reduce other damages components more than the past medical expenses component due to the relative ease of proving past medical expenses. If a Settlement Discount remains after all differential reductions have been completed and true value has been determined, a proportional reduction of each damages component is appropriate.
In any recipient's case, proof that the putative true value is the actual true value and proof that the settlement was dictated exclusively by, say, liability concerns are two sides of the same coin. In some cases, it might be easier for the recipient to prove the liability or other nondamages problems; in these cases, the administrative law judge may infer that these problems, alone, drove the Settlement Discount, so the putative true value equals the true value, and the recipient is entitled to a proportional reduction. In other cases, it might be easier for the recipient to prove the damages components directly to establish the true value, so any proof of liability problems merely reinforces the finding that the putative true value is the actual true value.
An expert witness may opine, within the scope of her expertise, as to the liability and creditworthiness of the settling defendant, the liability of the recipient, and the damages suffered by the recipient as a proximate cause of the settling defendant's acts and omissions.
The crux of the 17b proceeding are the determinations of the administrative law judge to undertake a straight proportional reduction by the Settlement Discount of the true value of the past medical expenses because the putative true

value is the actual true value; to reduce the putative true value to the actual true value, to reduce specific damages components of the putative true value to amounts that the recipient has proved by a preponderance of the evidence, and to calculate a Settlement Discount based on the actual true value and the settled value; or to decline any attempt to find the portion of the settlement proceeds representing the past medical expenses on the ground of a lack of proof and to dismiss the 17b petition.
These determinations are the sole responsibility of the administrative law judge. Assigning these determinations to an expert witness, even if his testimony is unrebutted, reduces the 17b proceeding into an empty exercise by effectively permitting the expert witness to conduct the 17b proceeding and prepare the final order.
As drawn from the available material in Giraldo52--the prehearing stipulation,53 the proposed final orders,54 the final order,55 and two appellate opinions--Respondent expended medical assistance of $322,222, past medical expenses totaled $347,045,56 the recipient settled with one defendant for about $1 million, the 11f formula produced an allocation of $321,720, and the putative true value of the case was about $25 million. A life care plan and economic report estimated the total of lost wages, loss of earning capacity, and future life care expenses at between $10 million and $29 million, which will be approximated

at $20 million. These putative damages components leave about

$4,653,000 as noneconomic damages. However, the administrative law judge was unpersuaded by the substantial life expectancy factored into the loss of earning capacity and future life care costs: at minimum, the death of the recipient five years after the accident, if related to injuries or illness linked to the accident, casts doubt on the presumed life expectancy, even if determined at the time of the settlement.
Two expert witnesses testified for the recipient; one of them was the recipient's trial attorney. These witnesses testified to the putative true value of the case and, indirectly,57 the settled value, so as to yield a putative Settlement Discount of about 96%. The expert witnesses then testified to a proportional reduction, multiplying the putative true value of the past medical expenses by 4% to yield $13,882.
In cases from other jurisdictions, it difficult to determine whether a judge's allocation of damages components is an issue of fact or law.58 The selection of a reduction method may be a conclusion of law. Evidence is needed for a fact, but a matter of law is concluded by intellectual abstraction.59 In any event, allowing the expert witness to select the reduction method is improper, regardless of whether this testimony is an issue of law or applies a legal standard to the facts60 or whether, notwithstanding section 90.703,61 this testimony is an issue of

ultimate fact, so that the expert's testimony is telling the jury how to decide a case62 or invades the province of the trier of fact.63 Under one or more of these principles, the testimony of the experts selecting the proportional reduction method is inadmissible.
More importantly,64 the expert witnesses lacked a sufficient factual predicate for a proportional reduction. The available materials depict catastrophic injuries, requiring two hospitalizations separated by five months, but important evidence as to damages is lacking. As always, the past medical expenses of $347,000 was certain of proof. The administrative law judge did not address the noneconomic damages of $4.653 million65; for discussion purposes, it is assumed that the recipient proved this damages component by a preponderance of the evidence, although, without knowing the identity of the settling defendant, causation could remain in doubt. However, the recipient failed to prove, at least, the life expectancy used for the portion of the
$20 million assigned to loss of earning capacity and future life care costs, which, given the relatively minor damages for lost wages, will be treated as $20 million.
Nor is it possible to examine the facts from the perspective of liability to see the extent, if any, to which

nondamages factors drove the settlement. The available materials report that the recipient sustained injuries when his all-terrain vehicle rolled over after the rubber portion of one tire separated from the rim. The materials do not disclose the identity of the settling defendant or even its relationship to the incident, or the nature of the settling defendant's acts and omissions. It is thus unknown if the settling defendant manufactured the vehicle, wheel or tire, installed the tire on the wheel, serviced the wheel or tire, or had some relationship to the site of the incident; nor is it possible to determine if the recipient was negligent or if the defendants were comparatively negligent.
The available materials indicate only that the recipient accepted $1 million "due to limiting factors," which explains nothing. As noted above, if the true value of the case included the $20 million, the Settlement Discount would be 96%, and Respondent's recovery would be $13,882, as Giraldo ruled. If
the true value included none of the $20 million, the true value would be $5 million, the Settlement Discount would be 80%, and Respondent's recovery would be $27,764. If the evidentiary record permitted the administrative law judge to find an intermediate life expectancy--say, ten years--and recalculate the loss of earning capacity and future life care costs, Respondent's recovery would be between $13,882 and $27,764. But, if the

recipient left too many gaps in its proof of the actual true value, the administrative law judge could not speculate to fill those gaps, but had no choice other than to dismiss the 17b petition.
1. Respondent's 17b Allocation Bears a Pro rata Share
  of Reasonable Attorneys' Fees and Costs Reasonably Incurred to Obtain Settlement
Respondent's recovery must be reduced by its pro rata share of reasonable attorneys' fees and costs reasonably incurred to obtain the settlement. See, e.g., Arex Indemnity Co. v. Radin, 72 So. 2d 393, 396 (Fla. 1954) (pro rata share of
attorneys' fees in workers' compensation equitable distribution); Lewis, 729 S.E. 2d at 304 (2012) (as required by state statute);
McKinney, 2018 U.S. Dist. LEXIS 86773 at p. 34. The 11f formula makes some accommodation for these above-the-line litigation expenses, as must the 17b proceeding. As the 17b proceeding substitutes a case-specific calculation of Respondent's recovery for the formulaic rendition of Respondent's 11f recovery, so the 17b proceeding should substitute a case-specific calculation of reasonable attorneys' fees for the formulaic rendition of attorneys' fees in the 11f formula.
1. Conclusion
The expert witness called by the recipient testified to the application of the proportional reduction method in this case. This testimony is stricken on the grounds described above.
However, primarily by its proof that liability issues drove the settlement, the recipient has proved that the putative true value is the actual true value, so the Settlement Discount is 91.7%. As explained above, this finding drives a tentative 17b recovery of $12,800 and a final 17b recovery of $5888 after accounting for Respondent's share of attorneys' fees and costs.

ORDER

It is

ORDERED THAT Respondent shall recover $5800 from Petitioner's $500,000 settlement.

DONE AND ORDERED this 22nd day of March, 2019, in Tallahassee, Leon County, Florida.

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 2019.

ENDNOTES

1/ All references to the "11f formula" are to section 409.910(11)(f) in its entirety.

2/ All references to the "Anti-Lien Statute" include the so- called anti-recovery statute, 42 U.S.C. § 1396p(b)(1), which similarly limits the ability of a state Medicaid agency to recover medical assistance expenditures properly paid on behalf of a recipient.

3/ See, e.g., Norwest Bank N.D., N.A. v. Doth, 159 F.3d 328 (8th Cir. 1998).

4/ All references to a "recipient" include the recipient's legal representatives, such as a parent, guardian, or personal representative.

5/ https://www.macpac.gov/subtopic/medicaids-share-of-state- budgets/

6/ Id.

7/ https://www.cms.gov/Research-Statistics-Data-and Systems/Research/ActuarialStudies/Downloads/MedicaidReport2017.pd f, p. v.

8/ In discussions of past and future medical expenses, it is important to differentiate between related, but distinct, concepts. From the perspective of the recipient, the judgment or settlement proceeds typically include past and future medical expenses. From the perspective of the state Medicaid agency, it has already expended medical assistance and may expend additional medical assistance.

9/ Ahlborn, 547 U.S. at 275.

10/ The Ahlborn opinion focuses on three provisions of federal Medicaid law requiring states to enact or adopt laws allowing the state Medicaid agency to recover from third parties liable for the injuries or illness necessitating the medical assistance expenditures: 42 U.S.C. §§ 1369a(a)(25)(B), 1396a(a)(25)(H), and 1396k(a) and (b) (Federal Third-Party Liability Statutes).

Counterposed to these statutes is another provision of federal Medicaid law, the Anti-Lien Statute, which provides: "No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on

his behalf under the State plan . . .." 42 U.S.C. § 1396p(a)(1). The Court conceded that, on its face, the Anti-Lien Statute would "appear to ban even a lien on that portion of the settlement proceeds that represents payment for medical care." Ahlborn, 547

U.S. at 284. The failure of Congress, when enacting the Federal Third-Party Liability Statutes, to harmonize them with the pre- existing Anti-Lien Statute, left the task to the courts. See Tristani v. Richman, 652 F.3d 360, 370 (3d Cir. 2011).

11/ Ahlborn, 547 U.S. at 288.

12/ E.M.A. v. Cansler, 674 F.3d 290 (4th Cir. 2012).

13/ A "mine-run" is the "unsorted product of a mine" or a "product of common or average grade." https://www.merriam- webster.com/dictionary/mine-run. The judicial use of this phrase seems to be synonymous with an average, typical, or "run-of-the- mill" case. See M.L.B. v. S.L.J., 519 U.S. 102, 116 (1996) ("But

. . . the Court has consistently set apart from the mine run of cases those involving state controls or intrusions on family relationships").

Wos,	568	U.S.	at	636-37.
Wos,	568	U.S.	at	638-39.
Wos,	568	U.S.	at	640.

14/

15/

16/

17/ Okla. Stat., Tit. 63, § 5051.1(D)(1)(d) (West 2011), as cited in Wos, 658 U.S. at 641. It appears that the Oklahoma statute's requirement of clear and convincing evidence has not been challenged, even though at least one major decision, decided before Wos, focused on an allocation under the statute. Price v. Wolford, 608 F.3d 698 (10th Cir. 2010).

18/ Wos, 568 U.S. at 641.

19/ Wos, 568 U.S. at 649 (Roberts, C.J., dissenting).

20/ Wos, 568 U.S. at 653 (Roberts, C.J., dissenting). Chief Justice Roberts touches on a point easily missed. In many cases, the apparent reach of a fractional formula is limited by the Reimbursement Principle. Assume in the following hypotheticals that past medical expenses and already-expended medical assistance are identical and the fractional formula is the 11f formula, which is described below. Assume that the recipient

filed a legal action, but has incurred negligible recoverable costs and attorneys' fees not in excess of 25% of the settlement amount. Assume no Settlement Discount. References to the recipient's share of the proceeds are to all damages components except past medical expenses, which are referred to as Respondent's share of the proceeds.

The recipient obtains a settlement of $25,000 for a case involving $15,000 of past medical expenses, $5000 of lost wages, and $5000 of noneconomic damages. The recipient and Respondent each are allocated $9375, so the recipient recovers 94% of his share of the proceeds, and Respondent recovers 63% of its share of the proceeds. (This scenario might be the closest to the "mine run of cases," if referring to the median, rather than the mean or average of recoveries.)

The recipient obtains a settlement of $250,000 for a case involving $50,000 of past medical expenses, $15,000 of lost wages, and $185,000 of noneconomic damages. The recipient and Respondent each would be allocated $93,750, but the Reimbursement Principle limits Respondent's recovery to $50,000, so the recipient is allocated $137,500. The recipient recovers 69% of his share of the proceeds, and Respondent recovers 100% of its share of the proceeds.

The recipient obtains a settlement of $40,000,000 for a case involving $1,000,000 of past medical expenses, $29,000,000 of future medical expenses, and $10,000,000 of noneconomic damages. The recipient and Respondent would each be allocated $15,000,000, but the Reimbursement Principle limits Respondent's recovery to

$1,000,000, so the recipient is allocated $29,000,000. The recipient recovers 74% of his share of the proceeds, and Respondent recovers 100% of its share of the proceeds.

Note that, where the Reimbursement Principle limits Respondent's recovery, the 11f formula could allocate Respondent a greater fraction, even 100%, and the same result would obtain. Interestingly, in the big-dollar case, such as the last hypothetical, the 11f formula could allocate Respondent a much smaller fraction without changing the result, again due to the Reimbursement Principle. Reducing the $40 million recovery by 25% for fees and ignoring costs, Respondent would recover all of its medical assistance expenditures if the fractional formula used a fraction as small as 1/30 or 3.3%.

21/ Wos, 568 U.S. at 651 (Roberts, C.J., dissenting). Not the least among such issues that Chief Justice Roberts omitted is the settling parties' desire for confidentiality. As will be clear in the discussion of Giraldo below, a Wos-driven proceeding like a 17b proceeding must address the details of a settlement, confidential or not. Perhaps a recipient may postpone public disclosure, at least until settlement or judgment is obtained against all defendants, by depositing an agreed-upon amount with the clerk or court and deferring the prosecution of a 17b-like proceeding.

22/ Wos, 658 U.S. at 653 (Roberts, C.J., dissenting). However, as endnote 20 demonstrates, in many cases, the Reimbursement Principle is more important than the actual fraction used in any simple fractional formula.

Chief Justice Roberts' focus on the actual percentage in a fractional formula draws attention to the legislative bargain inherent in any fractional formula. As reflected in the illustrations in endnote 20, the state does better in big-dollar cases, and the recipient does better in small-dollar cases.

In larger cases, which generally include large future medical damages components, the ratio of past medical damages to the total damages is relatively small, so a fractional formula favors the agency. In smaller cases, where the ratio of past medical damages to total damages is larger, a fractional formula favors the recipient.

The legislative bargain implicit in a standalone fractional formula, such as the 11f formula, is greatly revised with the introduction of the option for a 17b-like proceedings, at least where the recipient, but not the state Medicaid agency, is authorized to request a hearing due to dissatisfaction with the state Medicaid agency's fractional-formula allocation.

23/ Wos, 658 U.S. at 651 (Roberts, C.J., dissenting) (citation to majority opinion omitted).

24/ Wos, 658 U.S. at 652-54 (Roberts, C.J., dissenting).

25/ Ch. 1990-295, § 33, Laws of Fla. The Act was originally codified at section 409.2665.

26/ This clause became obsolete with the enactment of section 409.910(17)(b), which overrides section 409.910(11)(f).

27/ The legislature passed and the Governor signed into law two slightly different bills: ch. 2013-48, §§ 6 and 14 and ch. 2013 150, §§ 2 and 7, Laws of Fla., which both went into effect on July 1, 2013.

As to section 409.910(17)(b) generally, one court has cited with approval the staff analysis that the 17b proceeding effectively renders the 11f formula rebuttable, so as to bring the Act, including the 11f formula, into compliance with Wos. Vestal v. First Recovery Group, LLC, 292 F. Supp. 3d 1304, 1311-12 (M.D. Fla. 2018).

28/ Ch. 2017-129, § 19, Laws of Fla. Gallardo I was issued on April 18, 2017, and the 17b amendments were added to Senate Bill 2514 between April 12 and May 10, 2017. http://www.flsenate.gov/Session/Bill/2017/02514/?Tab=BillText However, the 2017 revisions do not delete the references to

future medical expenses and the clear and convincing evidentiary standard imposed on a recipient trying to establish a lower allocation to Respondent than that set by the 11f formula.

29/ Giraldo, 248 So. 3d 53.

30/ Under the Supremacy Clause, federal law is the supreme law of the land and "invalidates," by way of preemption, contrary state laws. ABC Charters, Inc. v. Bronson, 591 F. Supp. 2d 1272, 1298 (S.D. Fla. 2008). Notwithstanding the effect of preemption, it is not unusual for federal courts to issue injunctions in association with preemption rulings. See, e.g., ABC Charters, Inc. v. Bronson, 2009 U.S. Dist. LEXIS 31283 (S.D. Fla. 2009).

Gallardo I and II exhibit this pattern of declaratory relief incorporating the court's preemption rulings and injunctive relief implementing the rulings, as to a specific party.

31/ Gallardo II, 2017 U.S. Dist. LEXIS 112448, pp. 5-6. Judge Wetherell likewise construes Gallardo I and II as ruling only that 17b's references to future medical expenses and clear and convincing evidence are preempted. Smathers, 2019 Fla. App.

LEXIS 703, p. 4 n.2 (Wetherell, J., concurring).

32/ See, e.g., U.S. v. Supreme Court, 839 F.3d 888 (10th Cir. 2016).

33/ A finding of preemption, on its face, as to the reference to clear and convincing evidence would suffice. Once stricken, this

high evidentiary standard is unlikely somehow to find its way back into the 17b proceeding indirectly.

34/ Gallardo II contemplates ongoing 17b proceedings when it (correctly) anticipates that an administrative law judge, as a quasi-judicial officer, will conform to the preemption rulings in Gallardo I and II. Gallardo II, 2017 U.S. Dist. LEXIS 112448, pp. 16, 20-21, and 23. See also Smathers, 2019 Fla. App. LEXIS 703 (Wetherell, J., concurring).

35/ As noted above, the formula-based allocation is in section 409.910(11)(f). Section 409.910(17)(b) has no formula. This is not the only reference that the court made to a formula-based allocation in a 17b proceeding. As enacted, section 409.910(17)(b) authorizes a recipient--by any means or method of its choosing--to prove by clear and convincing evidence that Respondent's recovery should be reduced from its 11f recovery.

The third direction means merely that the recipient may not be required to prove a reduced recovery by clear and convincing evidence.

36/ Gallardo I, 263 F. Supp. 3d at 1249.

37/ Rejecting all but one of Respondent's arguments, the court amended the judgment to relieve Respondent from the injunctive relief concerning the clear and convincing evidentiary standard. The court agreed with Respondent that injunctive relief on this point was inappropriate because an administrative law judge, not Respondent, conducts the 17b proceeding.

38/ Rejecting as irrelevant whether any recipients in 17b proceedings have overcome the 11f allocation, Gallardo II explains that:

the formula-based allocation is still preempted if, "[i]n some circumstances,

. . . [i]t permits the State to take a portion of the [recipient's] tort judgment or settlement not 'designated as payments for medical care.'" Wos . . ., 568 U.S.

627, 644 . . . (quoting Ahlborn, 547 U.S. at 284). And, after reasoning that the

formula-based allocation ignores allocations made by a judge or jury and has no rational relationship to the Florida Bar's attorney's fees rules [footnote and citation to

Gallardo I omitted], this Court concluded that it does.

Gallardo II, 2017 U.S. Dist. LEXIS 112448, pp. 10-11.

In explaining its Gallardo I ruling in terms of the scope of injunctive relief, Gallardo II states:

[the court] simply meant to enjoin [Respondent] from seeking reimbursement for past medical expenses [i.e., already- expended medical assistance] through portions of a recipient's recovery that represents future medical expenses either directly from the recipient [footnote omitted] or through DOAH. [footnote omitted] By extension, that also means [Respondent] cannot seek reimbursement based on the formula-based allocation when doing so would allow it to obtain more than that which it is entitled to. Those are both tasks that [Respondent]--which is responsible for administering Medicaid and asserting Medicaid liens—"ha[s] some connection with "

Gallardo II, 2017 U.S. Dist. LEXIS 112448, p. 16. The reference to a recovery "directly from the recipient" is puzzling because the availability of the 11f formula is conditioned on the filing of a legal action to establish liability of one or more defendants for the subject injuries or illness, as noted above, so the circuit court makes the 11f allocation. Clearly, this reference cannot refer to a 17b proceeding because there is no means by which Respondent could obtain a recovery through a 17b proceeding except through DOAH.

39/ The preemption ruling as to future medical expenses goes to what a recipient must prove, but the preemption rule as to the high evidentiary standard goes to the difficulty of proving what a recipient must prove.

40/ As noted in endnote 28, the legislature responded quickly to Gallardo I, but not by conforming section 409.910(17)(b) to the court's preemption rulings. After the 2017 statutory revisions, section 409.910(17)(b), on its face, continued to apply to future medical expenses and continued to impose the clear and convincing

evidentiary standard on the recipient trying to prove that Respondent's allocation must be less than its 11f allocation. In fact, the legislature added a second clear and convincing evidentiary standard to any attempt by a recipient to prove that Respondent had not expended as much medical assistance as it claimed. (All references to the clear and convincing evidentiary standard in this final order are to the single occurrence of this high evidentiary standard in the 2013 version of section 409.910(17)(b), not to the new, second occurrence of this high evidentiary standard in disputes about the amount of medical assistance that Respondent has expended.) While responding to Respondent's issues with Gallardo I, the court took advantage of the opportunity in Gallardo II to emphasize that anything short of the permanent deletion of the clear and convincing standard from the 17b proceeding would mean the invalidation of the 11f formula.

41/ With the invalidation of the clear and convincing evidentiary standard, the recipient's proof in a 17b proceeding is subject to the preponderance evidentiary standard. § 120.57(1)(j).

42/ Respondent has reached the same conclusion because it requests an 11f allocation in its proposed final order.

43/ However, the administrative law judge in Giraldo admitted into evidence the life care plan and economic report as exceptions to hearsay on which an expert relied. See, e.g., Linn v. Fossum, 946 So. 2d 1032 (Fla. 2006). They also may have been admissible as "evidence of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs."

§ 120.569(2)(g).

44/ Juan L. Villa v. Ag. for Health Care Admin., Case No. 15-4423MTR (Fla. DOAH Dec. 30, 2015), as found at https://www.doah.state.fl.us/ROS/2015/15004423.pdf

45/ Giraldo v. Ag. for Health Care Admin., 288 So. 3d 244 (Fla. 1st DCA 2016).

46/ Giraldo, 248 So. 3d at 56 (citing Wald v. Grainger, 64 So. 3d 1201, 1205-06 (Fla. 2011). The majority did not discuss the evidentiary deficiencies cited in the final order and evidently failed to understand that the proportional reduction was unsupported by the evidence.

47/ Giraldo, 248 So. 3d 53, 58 (Polston, J. dissenting).

48/ The accident that produced the catastrophic injuries that necessitated the medical assistance expenditures on behalf of the Giraldo recipient occurred in 2010. The first settlement occurred in 2015, at which time Respondent asserted its Medicaid lien, and the recipient filed with DOAH a request for a hearing in a 17b proceeding. The administrative law judge issued a final order in 2015, the district court of appeal issued its opinion affirming the final order in 2016, the supreme court issued its opinion reversing the appellate court in 2018, and the administrative law judge issued a conforming final order in 2018. After the death of the recipient, closure was indicated, strongly.

49/ In Price v. Wolford, 608 F.3d 698 (10th Cir. 2010), the Medicaid state agency claimed a lien of $544,282 on a

$1.1 million settlement, but the trial court allocated the agency only $67,667. The court recognized that a proportional reduction of a claim often is motivated by uncertainty as to the liability of the settling tortfeasor or the tortfeasor's ability to pay a judgment. Wolford, 608 F.3d at 707. But the court noted that a separate reduction would be necessary if the doubts pertain to damages, such as whether specific damages were caused by the tortfeasor's acts and omissions. On this matter, the court observed that past medical expenses are generally more certain to be recovered than damages for pain and suffering. Wolford,

608 F.3d at 707-08. However, the court found no evidence whatsoever supporting the trial court's allocation: the life care expert had failed to reduce the future medical expenses to present value and had assumed a normal life expectancy despite injuries that likely shortened the recipient's life. Wolford, 608 F.3d at 708. In dictum, the court recognized that the Medicaid lien would have to be reduced also for its share of attorneys' fees and costs incurred in obtaining the settlement.

In McKinney v. Philadelphia Housing Authority, 2010 U.S. Dist.

LEXIS 86773 (E.D. Pa. 2010), the city Medicaid agency expended

$1.2 million in medical assistance for a number of recipients, who allegedly had been injured by unhealthy conditions in public housing. The recipients settled their allegedly $45 million case for about $11.9 million and argued for a proportional reduction of the medical assistance expenditures. To this end, the recipients obtained testimony from a life care expert for future medical expenses, a professor of economics for loss of earnings, and two fact witnesses as to pain and suffering. For its part, the city Medicaid agency based its claimed allocation on an

11f-like regulation that split the settlement proceeds equally between the recipient and agency, after deduction for actual attorneys' fees and costs.

The McKinney court rejected the recipients' invitation for it to conduct a mini trial to determine the true value of a case. The court questioned why it should assume that the recipients settled proportionately the true value of their claims.

McKinney, 2010 U.S. Dist. LEXIS 86773, p. 20. The court declined to reduce the past medical expenses by the substantial Settlement Discount on the ground that the jury would have awarded this "readily quantified" amount in full. Turning to whether a reduction of this damages component was needed due to liability issues, the court found that the recipients had a "strong case" against each of the multiple defendants, but there were elements of comparative negligence and a questionable causal link between the acts and omissions of the defendants and some of the injuries or illnesses suffered by the recipients. Lastly, the court considered the recipients' need for an "immediate cash settlement," which would also relieve them of the risk of noncollection. Making no attempt to quantify its exhaustive list of considerations, the court reduced the past medical expenses by one-third, which was far less than a proportional reduction, but further reduced the agency's recovery by its pro rata share of attorneys' fees and costs. McKinney, 2010 U.S. Dist. LEXIS 86773, pp. 28-35. This case is an example of a combined differential and proportional reduction of past medical expenses.

In Lewis v. West Virginia Department of Health & Human Resources, 729 S.E. 2d 270 (W. Va. 2012), the state Medicaid agency expended $557,105 in medical assistance, and the recipient obtained a $1 million settlement against a pair of related defendants and a $2.6 million settlement against a second pair of related defendants; both settlements represented the limits of relevant liability policies maintained by the respective pairs of defendants. The recipient claimed that the true value of her case was about $25 million, including $1.255 million for past medical expenses, $19.1 million for future medical expenses, and

$5 million for noneconomic damages. Arguing for a proportional reduction of 85.2%, the recipient argued that the medical assistance expenditures should be reduced to about $79,000. (There were two state Medicaid agencies, but, for simplicity, only one is discussed in this endnote.) The state Medicaid agency argued that a state statute entitled it to a full recovery of its medical assistance expenditures. The trial court disagreed and awarded the agency about $79,000. After a minor

adjustment, the supreme court affirmed the proportional reduction, but reduced the allocation by the agency's pro rata share of attorneys' fees and costs. Lewis, 729 S.E. 2d at 304. See also Ricks v. Ark. Dep't of Human Servs., 2018 U.S. Dist.

LEXIS 97526 (E.D. Ark. 2018) (proportional reduction where expert witness testified that settlement driven by liability and other unspecified problem).

50/ § 768.81.

51/ This is the crucial point at which the administrative law judge must implement the evidentiary ruling of Gallardo I and II invalidating the clear and convincing evidentiary standard of section 409.911(17)(b). To prove the true value damages components, the recipient is required to prove each component by a mere preponderance of the evidence.

An obvious argument favoring the Gallardo court's ruling is that the recipient is only required to prove by a preponderance of the evidence each damages component in the underlying tort action. Since the invalidation of the reference to future medical expenses in section 409.911(17)(b), a counterargument emerges. Because the Medicaid lien is now limited to the proceeds representing past medical expenses, which, alone among damages components, are provable to near certainty, the recipient should be required to prove the other damages components at least by clear and convincing evidence to assure that all of the damages components are of comparable certainty.

52/ The undersigned administrative law judge did not examine the exhibits.

53/

https://www.doah.state.fl.us/DocDoc/2015/004423/15004423_0_092520 15_14571722_e.pdf.

54/ The proposed final orders of Petitioner and Respondent are, respectively, at:

https://www.doah.state.fl.us/DocDoc/2015/004423/15004423_0_111320 15_12152733_e.pdf and

https://www.doah.state.fl.us/DocDoc/2015/004423/15004423_0_111220 15_16091235_e.pdf

55/ Vila v. Ag. for Health Care Admin., Case No. 15-4423MTR, 2015 Fla. Div. Adm. Hear. LEXIS 506 (Fla. DOAH Dec. 30, 2015).

The recipient was the late Mr. Vila. In federal district court, Ms. Gallardo, a legal representative, was substituted for the decedent.

56/ Other payors of medical claims, besides Respondent, paid about $25,000 of the past medical expenses.

57/ The recipient sought to preserve the confidentiality of the settlement while prosecuting a 17b proceeding. See endnote 21.

58/ In Clanton v. United States, 2018 U.S. Dist. LEXIS 126047 (S.D. Ill. 2018), the issue seemed to be one of law when the court found several comparable cases establishing an appropriate range for noneconomic damages, such as pain and suffering, although the court may have been relying on the facts of these cases as evidence for its allocation. In McKinney, the court characterized the result of its analysis as a finding of fact, although the court was relying on the pleadings and "other materials" in the case file, as well as, it seems, judicial and possibly legal experience outside of the evidentiary record and even the case file.

59/ Markman v. Westview Instruments, Inc., 52 F.3d 967, 1009 (Fed. Cir. 1995) (Newman, J., dissenting) (citing Clarence Morris, "Law and Fact," 55 Harv. L. Rev. 1303, 1304 (1942)).

60/ Palm Beach v. Palm Beach Cnty., 460 So. 2d 879, 881-82 (Fla. 1984) (where facts are undisputed, the legal effect of the evidence is a conclusion of law); Cnty. of Volusia v. Kemp,

764 So. 2d 770, 773-74 (Fla. 5th DCA 2000) (improper for expert witness to tell the jury that defendant's conduct was unconstitutional); McDougald v. Perry, 716 So. 2d 783 (Fla. 1998) (once factual predicate is laid, judge instructs jury of the doctrine of res ipsa loquitur).

61/ This statute provides: "Testimony in the form of an opinion or inference otherwise admissible is not objectionable because it includes an ultimate issue to be decided by the trier of fact." The following cases recognize exceptions to this statutory provision.

62/ Palm Beach, 460 So. 2d at 882 (inadmissible for witness to tell a jury how to decide case; proper expert testimony helps jury to understand what occurred); Mootry v. Bethune-Cookman

Univ., Inc., 186 So. 3d 15, 21 (Fla. 5th DCA 2016) (inadmissible for a witness to tell a jury that a party did not breach a contract).

63/ Smith v. Martin, 707 So. 2d 924 (Fla. 4th DCA 1998) (per curiam) (expert witness may not testify that defendant committed gross negligence due to risk that jury will forego its duty to evaluate the evidence independently).

64/ If expert witnesses improperly displace the administrative law judge in making conclusions of law or factfinding, they should at least do the administrative law judge's job competently.

65/ $25 million - $20 million of lost wages, loss of earning capacity and future life care costs - $347,000 of past medical expenses.

COPIES FURNISHED:

Mary C. Mayhew, Secretary

Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 1